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Interest rate commentary for 17 July – 21 July 2017

Bond yields went lower in all major markets but, in Australia, there were held up to some degree. One small paragraph in the minutes of the July meeting of the RBA board was enough to set off a small explosion across domestic financial markets. Short term bond yields jumped, the Aussie leapt 1.5 U.S. cents and the month in which the RBA is expected to raise the cash rate was brought forward. Despite reassurances from the RBA regarding their regular academic discussions and how they don’t mean anything, the horse has bolted. In any case, everyone knows one cannot have accommodative monetary policy forever.

Unless one lives in Europe…and not even then. The ECB’s latest policy meeting left rates unchanged but there was a hint the money printing presses will be slowed some time in the next few months. There is certainly no mention of a normalisation of interest rate policy there and perhaps this is why investors were not deterred from buying European bonds and, as a result, yields finished the week lower.


From RBA Deputy Governor Guy Debelle’s Adelaide speech Friday 21st July

chart of the weekhome
Close △Week Week
Cash Rate%  1.50
90day Bank Bill% 1.70  0.00 1.70 1.70
Aust 3y Bond%* 2.00  0.01 2.14 1.96
Aust 10y Bond%* 2.70 -0.02 2.79 2.68
Aust 20y Bond%* 3.27 -0.03 3.32 3.26
US 2y Bond% 1.34 -0.02  1.36  1.34
US 10y Bond% 2.24 -0.09 2.31 2.24
US 30y Bond% 2.81 -0.11 2.91 2.81
iTraxx 78.0 -3.1 81.0 78.0
$1AUD/US¢ 79.13 0.86 79.89 77.86
* Implied yields from Sep 2017 futures


In the U.S., it was more about politics. Every Trump administration set-back (in this case the failed repeal/replacement of “Obamacare”) is viewed through the prism of fewer growth-oriented policies getting through Congress. Lower bond yields were the result.

Domestically, there were a few reports but the attention for most of the week was all on the RBA. Firstly, the contents of the July minutes provided some controversy, at least initially. Then, for a few days, the focus moved to a speech given at the end of the week by the RBA’s deputy chief. The result? Forget any idea of another rate cut. The cash markets certainly have.

Median trading margins of ASX-listed notes and ASX-listed hybrids both moved higher. A lot of it was driven by short-dated securities but not in all cases. How much, if any, of the movement in trading margins was the result of ASIC’s latest salvo at this sector is debatable; perhaps the presence of higher yields in the same week as the ASIC chairman declared hybrids to be a ridiculous product for retail investors was just coincidence. For readers interested in these ridiculous products, our tables and charts may help avoid a ridiculous investment decision.

Spreads in the corporate bond market were slightly wider but other risk-indicators were less illuminating. A well-known issuer returned but as with most weeks, issuance was dominated by the major banks.

Check out our comparison of some of the peer-to-peer offerings currently available.

Funds flowed into the bond ETF  sector in a modest way but essentially nothing much happened here.

We hope you enjoy reading this week’s YieldReport.

June 2017 monthly interest rate commentary

The RBA statement after its July board meeting was not as hawkish as expected in light of what appeared to be concerted efforts by central banks in recent weeks to discuss tighter monetary policy in various jurisdictions. Yields in Australia dropped. However, these domestic pressures were soon pushed aside by offshore news emanating from the ECB once again.

ECB minutes of its June meeting released on Thursday night Australian time provided more evidence of a central banks on a countdown to dropping its easing bias. As a result, European yields leapt on the day .…Click here to read more

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